Metis AM
A recent report by FTAdviser revealed a striking statistic: more than half of teenagers say they would have liked their financial education to begin earlier in their lives.
A further 70% said saving techniques should be taught in school, and 63% believed budgeting lessons should be prioritised.
These findings demonstrate a critical gap within our education system and highlights that financial education is more important than ever.
However, financial education doesn’t only have to be conducted at school. Instilling this learning at home could be crucial. Not only could it equip your children with the tools and knowledge they need to manage their money effectively, but it could also help teach responsible decision-making and show them the value of long-term financial security.
While many parents do recognise the importance of these skills, knowing where to start can be tricky. So, here are six important financial lessons you can teach your children to help pave the way for a brighter financial future.
1. Highlight the value of money and the difference between earning and spending
One of the most fundamental money lessons you can teach your children is that money is a limited resource, usually earned through work or effort.
In today’s fast-paced world, it can be easy for children to lose sight of the connection between work and reward. Showing them how money is earned and the effort it often requires could help them to learn its true value.
Here are a few practical lessons you could teach your children:
- Associate their allowance with chores to teach them that money is earned through contributing to the household.
- Encourage them to get a part-time job as a way of experiencing the workplace.
- Teach them the “work first, reward later” concept by encouraging them to save up for large purchases.
These lessons will vary depending on your circumstances, so adapting them to suit your family could be constructive.
2. Demonstrate the basics of budgeting with practical tools
Once your children understand the value of money, the next step may be to teach them how to manage it effectively. This is where budgeting comes in.
Explain to them that budgeting is simply a plan for how to spend your money and that it’s an important skill for financial success.
Start by explaining the difference between “needs” and “wants” and help your children understand that needs should take priority in their budget.
For younger children, consider using a simple visual budget, such as a jar system. Here, they can have one jar for wants and one for needs, making it easier for them to understand the difference.
For older children, introduce them to spreadsheets or budgeting apps. Help them track their income and expenses and categorise these into needs and wants.
You can also involve your children in the process of planning the family budget, particularly as they get older. This might give them a more realistic idea of how much living expenses cost and how they’re divided.
3. Show your children the difference between saving money for short- and long-term goals
Teaching your children to save money is about more than accumulating wealth, though this in itself is a valuable lesson.
Saving is also about instilling valuable life skills such as delayed gratification, planning for the future, and having the patience to achieve their goals.
For this reason, it’s also essential to help them understand the difference between saving for short-term targets and long-term goals.
Explain to them that short-term savings are for things they want in the near future. This could be anything from a new toy or video game to concert experiences or days out. This can help them experience the feeling of working for something and then being able to enjoy the reward.
Long-term savings are for bigger goals further down the road, such as a car, time abroad, or even a deposit on a house. These goals may seem distant to a child, but it’s never too early to start emphasising the importance of planning ahead.
4. Help your children avoid debt by teaching them about credit
The popularity of “buy now, pay later” schemes like Klarna means that even young children could be exposed to credit agreements when shopping online.
In today’s credit-driven world, equipping your children with the knowledge they need to navigate debt and credit responsibly is important.
Begin by explaining that credit is essentially borrowing money with the promise to pay it back later, usually with interest. This will help them understand that interest is the cost of borrowing money, and it can significantly increase the total amount they owe.
Here, it could help to stress a few important points:
- Credit cards are not “free money”, and your child will likely owe more than they originally paid for an item.
- Having a good credit score can help in the future when financing large purchases.
- Some debts can be productive, such as a mortgage or student loan, while “bad debt” like payday loans should be avoided if possible.
Remember, by teaching your children about the risks and rewards of credit, you’re helping them avoid the pitfalls of excessive debt and supporting them in building a strong financial foundation.
5. Teach your children the basics of investing through analogy
While younger children are unlikely to grasp the intricacies of the stock market, you can certainly lay the groundwork for understanding the principles of investing.
For example, you could use the snowball analogy for both young and older children. Explain to them that, in many ways, investing is like watching a snowball roll down a hill. As it goes, it gets bigger and bigger, making it easier to pick up even more snow.
With children, it can often help to show them physical examples of what you mean, so, if possible, demonstrate in real terms.
For older children, you can consider exploring age-appropriate investing apps that allow them to invest small amounts of money in stocks or other assets. It’s helpful to explain the different types of assets and the risks that come with them, to ensure your children are not duped into investing all their hard-earned savings in a high-risk holding.
6. Help your children learn from mistakes by encouraging open conversation
One of the most valuable lessons you can share with your children about money is that everyone makes mistakes. Financial missteps are a natural part of life, and what matters most is how you learn and grow from them.
Here, creating a safe space for open and honest conversations about money is crucial as your children will likely feel comfortable bringing their mistakes to you.
When they do make a mistake, such as overspending or making a poor purchase, it might not be helpful to immediately scold them. Instead, use it as a teaching moment. Discuss what went wrong and what they could have done differently, helping them understand how to avoid making the same mistake in the future.
Get in touch
Financial literacy is key to a healthy relationship with money, and the more education you can provide for your children, the better – especially when most schools fall short in this area.
We’re also here to help you with your financial plan and give you the tools you need to make informed decisions about your money.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.